Market Pulse

September is usually a black eye for stocks but all the major indices surprised to the upside.  The Dow edged up 1.85% and S&P 500 popped 2.14%. The Nasdaq was up 2.7%, logging its best September since 2013.  For the quarter, the S&P 500 and the Nasdaq advanced 5.5% and 2.6%, respectively, with both scoring their fourth consecutive quarter of gains. The Dow also booked its best quarter since 2023, ending up 8.2%.

The monthly and quarterly gains can be attributed to ongoing optimism surrounding a soft landing, encouraging inflation results, the recent Fed rate cuts, and Chinese stimulus.  Historical trends are also on the markers side.  Going back to 1945, when the stock market is positive in September during an election year, it led to a gain in the following October nearly 80% of the time.  Additionally, Nine of the S&P 500’s eleven sectors have risen in the fourth quarter of election years since 1992. (source: CFRA Research)

The two biggest factors that could slow down the markets progress include broader conflict in the Middle East which is likely to push the price of oil higher, and US elections which are just about a month away.  Additionally, the next two employment reports for September and October, will play important roles in determining the size and timing of the next interest-rate cut from the Federal Reserve.  September’s numbers already came in better than expected, muddling up the potential for the Fed to reduce rates at it’s next meeting.  

Of course, all eyes seem fixated on the tight race between Vice President Kamala Harris and former President Donald Trump, as well as which party keeps or wrestles control in congress.  For now, we will leave the election forecasting to the political experts and instead focus on what the election may mean to your portfolio and retirement plans.

If we take a historical, data driven perspective at how sectors and markets have performed during previous administrations one thing stands out: There is no clear relationship between a president’s political party and stock market results. Rather, market movement is determined by a complex interplay of the economy, corporate fundamentals (revenues, profit margins, innovation), valuation, business cycle, and market sentiment to name a few.

Policy can have an impact on these variables but it is not a primary driver of returns. In fact, it functions more as a lag rather than predictor.  Therefore, pricing political control into future returns is difficult because it’s hard to know what if anything actually gets enacted.  After all enacting presidential priorities/promises is dependent on those serving in Congress.

Overall, when it comes to markets and political events, the theme for us is “preparation  rather than prediction.” Going forward, we do expect some volatility as markets jostle with geopolitical risks and campaign mud slinging, but we view this as an opportunity to diversify and adjust portfolio risk. 

As a result, we continue to see value in fixed income as the trajectory for interest rates is lower, as well as opportunities in both oil and energy. Issues in the Middle East are likely to push the price of oil higher and the AI craze is poised to consume massive amount of electricity for years to come. Both sectors have served each party well in the recent past.

“Big Board” Retirement

I was recently checking out at Home Depot when a younger man walked in.  He was greeted by the self-checkout attendant who asked him, “Is there something I can help you find?”

Without any hesitation, the jovial young man replied, “Yes, I need a big board.”

Baffled by the response, the attendant paused as she tried to figure out how to better understand his needs, so she asked, “Is there a particular size?”

The young man responded, “Yes, just a big one.”

It was such an honest and innocent response that I couldn’t help but chuckle.  I started thinking to myself, what could he possibly be looking for.

Is a big board, a sheet of plywood, a 2×4, or maybe a 4×4 post.  Did he perceive a “big board” as a long board, or a wide board, and what about the tools and other resources he would need to do something with it?  Did he have a hammer & nails or a drill & screws?

As I was leaving the store, the attendant directed him to the lumber aisles. I can only imagine what he thought when he got there and saw every conceivable option available. It’s a funny story that can happen to people as they work their way towards retirement.  They have this very vague, “big board” image in their head about life after work, but have little to no idea as to what they are really in for.

Like the different dimensions of wood, retirement can mean different things to different people.  For those who walk into it with a “big board” mentality they can quickly realize it’s not necessarily easy to replace your work identity, fill your time with meaningful tasks, keep mentally and physically active as well as relevant and connected.

If you’ve ever done any DIY projects for your home, you have likely heard the saying “measure twice, cut once… or as some say it, measure once, cuss twice.” Like the young man who came into the store with no measurement, it’s important for new and soon to be retirees to measure more than their finances in the transition.

Key additional measurements include determining what you may lose in making the retirement transition rather than just focusing on what you will gain and assessing how your personality will be impacted by retirement. For example, if you’re a Type A personality who prefers routine and structure in your day, assuming that you will suddenly be able to change to a “go with the flow” type person now that you are retired doesn’t usually work out.  It may last for a week or two, but ultimately retirement doesn’t change who you are, which means that the better you understand yourself and your personality the better transition you can make.

The reality is, whatever “boards” you frame your retirement with, it’s important to realize you can’t caulk around the gaps or use wood puddy to fix it.  It’s essential to have a specific plan that not only meets your needs and matches your personality, but is also built on a strong foundation with the right tool and resources.